march 2013 - Aljazira Capital
MARCH 2013 Please read Disclaimer on the back
KSA building & construction sector | Al-Babtain Power & Telecom. Co. (Al-Babtain) Investment outlook update | March 2013
Outlook
New recommendation
Neutral
We reiterate our ‘Neutral’ recommendation for the stock with a revised 12-month price target of SAR22.3/share (down 15.5% from our last recommendation on December 25th, 2012). It should be noted that the downward revision is mainly related to the changes in valuation parameters. In the long term, Al-Babtain is expected to benefit from higher government expenditure on infrastructure and the anticipated decline in production expenses as well as operating costs due to the reduction in input prices and improved cost management.
Old recommendation
Neutral
Investment consideration
Old 12-month price target
SAR26.4
Current market price
SAR23.5 (13th Mar 2013)
Upside / (Downside)
-5.0%
Price performance Absolute (%)
Our revised 12-month price target indicates a downside of 5.0% over the market Relative to TASI (%) price of SAR23.5/share (as of March 13th, 2013).
Key updates
SAR22.3
New 12-month price target
3M
9M
12M
-4.47
6.33
-18.69
-7.43
1.86
-11.86
Source: TASI & Zawya
Key growth drivers for 2013
• On the valuation front, we have revised Al-Babtain’s expected return from the • The
Saudi government’s planned large-scale expenditure for infrastructure development is expected KSA market to 13.146%, with the synthetic risk-free rate at 2.7%. We have to be a major growth driver for Al-Babtain’s top line. assumed two years’ weekly beta to be 1.29, based on data from Bloomberg, • Pick-up in expansion plans by telecom players in the Kingdom would support the company’s growth. and updated the company’s capital structure and cash flows in accordance • We expect Al-Babtain to focus on reducing input with 2012 results. costs and other operating expenses, and believe its • We expect Al-Babtain’s revenue and net profitability to expand at a CAGR of margins would expand 2013 onwards. 7.6% and 21.6%, respectively, during 2013–16; reflecting stability in profit margins 2013 onwards. Key risk factors for 2013
• Slowdown in end markets, deferred capital expenditure plans by telecom players, increased competition from Asian peers and volatility in the cost of key inputs remain the key risks for Al-Babtain.
Key financial data Amount in SARmn, unless otherwise specified
2012
2013e
2014e
2015e
2016e
Sales revenue Growth YoY (%) Cost of sales Gross Profit Growth YoY (%) General & administration expenses Operating Profit Growth YoY (%) Financial/Bank charges Other expenses Profit before zakat & minority interest Zakat Minority Interest Net profit Growth YoY (%) Key Fundamental Ratios Liquidity ratios Current ratio (x) Quick Ratio (x) Profitability ratios Gross Margin Operating margin Net Income Margin EBITDA margin Return on average assets Return on average equity Leverage ratio Debt/Equity (x) Market/Valuation ratios EV/Sales (x) EV/EBITDA (x) EPS (SAR) BVPS (SAR) Market Price (SAR)* Market-Cap (SAR mn) Dividend Yield P/E ratio (x) P/BV ratio (x)
1,352 34.5% (1,164) 187 20.3% (135) 53 -32.9% (28) 42 67 (7) (1) 60 -21.5%
1,417 4.8% (1,208) 209 11.4% (128) 81 53.6% (30) 44 96 (11) 85 41.5%
1,521 7.3% (1,289) 232 11.0% (132) 100 23.2% (25) 46 122 (13) 108 26.8%
1,639 7.8% (1,381) 258 11.3% (136) 122 21.7% (19) 49 152 (17) 135 24.7%
1,765 7.7% (1,474) 291 12.8% (154) 138 12.8% (16) 51 173 (19) 154 13.8%
5.2 2.8
4.7 2.5
4.4 2.4
4.2 2.2
3.9 2.1
13.9% 3.9% 4.5% 6.7% 3.9% 10.3%
14.7% 5.7% 6.0% 8.6% 5.3% 15.0%
15.2% 6.6% 7.1% 9.3% 6.8% 18.0%
15.7% 7.4% 8.2% 10.0% 8.5% 20.6%
16.5% 7.8% 8.7% 10.3% 9.6% 20.9%
0.16
0.16
0.21
0.19
0.13
1.26 18.75 1.42 13.11 23.75 1,012 5.3% 16.78 1.81
1.20 13.98 2.00 13.58 23.50 1,002 5.3% 11.73 1.73
1.12 12.10 2.54 14.57 23.50 1,002 5.3% 9.25 1.61
1.04 10.35 3.17 16.20 23.50 1,002 5.3% 7.42 1.45
0.96 9.39 3.60 18.26 23.50 1,002 5.3% 6.52 1.29
Source: Aljazira Capital * We have taken respective December closing prices for 2012, while for years 2013 & onwards we used closing price of 13th Mar 2013. We used the company’s preliminary (unaudited) quarterly financial statements for 2012.
© All rights reserved
RESEARCH DIVISION BROKERAGE AND INVESTMENT CENTERS DIVISION
AGM - Head of Research
Senior Analyst
Abdullah Alawi
Syed Taimure Akhtar
+966 2 6618275 [email protected]
+966 2 6618271 [email protected]
Senior Analyst
Analyst
Analyst
Talha Nazar
Saleh Al-Quati
Jassim Al-Jubran
+966 2 6618603 [email protected]
+966 2 6618253 [email protected]
+966 2 6618602 [email protected]
General Manager - Brokerage Division Ala’a Al-Yousef
AGM-Head of international
Regional Manager - West and South
and institutional brokerage
Regions
Luay Jawad Al-Motawa
Abdullah Al-Misbahi
+966 1 2256000 [email protected]
+966 1 2256277 [email protected]
+966 2 6618404 [email protected]
Area Manager - Qassim & Eastern Province
Abdullah Al-Rahit
RESEARCH DIVISION
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.
RATING TERMINOLOGY
+966 6 3617547 [email protected]
1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. 2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. 3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. 4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by AlJazira Capital from sources believed to be reliable, but AlJazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. AlJazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in AlJazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report. This report has been produced independently and separately and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report. It should be also noted that the Research Division of AlJazira Capital had no information at the time of issuing this report regarding any conflict of interest between the company/companies mentioned in this report and any members of the board / executives / employees of AlJazira Capital or any of Bank AlJazira Group companies. No part of this document may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of AlJazira Capital. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations.
Asset Management
Brokerage
Corporate Finance
Custody
Advisory
Head Office: Madinah Road, Mosadia، P.O. Box: 6277, Jeddah 21442, Saudi Arabia، Tel: 02 6692669 - Fax: 02 669 7761
KSA building & construction sector | Al-Babtain Power & Telecom. Co. (Al-Babtain) Investment outlook update | March 2013
Outlook
New recommendation
Neutral
We reiterate our ‘Neutral’ recommendation for the stock with a revised 12-month price target of SAR22.3/share (down 15.5% from our last recommendation on December 25th, 2012). It should be noted that the downward revision is mainly related to the changes in valuation parameters. In the long term, Al-Babtain is expected to benefit from higher government expenditure on infrastructure and the anticipated decline in production expenses as well as operating costs due to the reduction in input prices and improved cost management.
Old recommendation
Neutral
Investment consideration
Old 12-month price target
SAR26.4
Current market price
SAR23.5 (13th Mar 2013)
Upside / (Downside)
-5.0%
Price performance Absolute (%)
Our revised 12-month price target indicates a downside of 5.0% over the market Relative to TASI (%) price of SAR23.5/share (as of March 13th, 2013).
Key updates
SAR22.3
New 12-month price target
3M
9M
12M
-4.47
6.33
-18.69
-7.43
1.86
-11.86
Source: TASI & Zawya
Key growth drivers for 2013
• On the valuation front, we have revised Al-Babtain’s expected return from the • The
Saudi government’s planned large-scale expenditure for infrastructure development is expected KSA market to 13.146%, with the synthetic risk-free rate at 2.7%. We have to be a major growth driver for Al-Babtain’s top line. assumed two years’ weekly beta to be 1.29, based on data from Bloomberg, • Pick-up in expansion plans by telecom players in the Kingdom would support the company’s growth. and updated the company’s capital structure and cash flows in accordance • We expect Al-Babtain to focus on reducing input with 2012 results. costs and other operating expenses, and believe its • We expect Al-Babtain’s revenue and net profitability to expand at a CAGR of margins would expand 2013 onwards. 7.6% and 21.6%, respectively, during 2013–16; reflecting stability in profit margins 2013 onwards. Key risk factors for 2013
• Slowdown in end markets, deferred capital expenditure plans by telecom players, increased competition from Asian peers and volatility in the cost of key inputs remain the key risks for Al-Babtain.
Key financial data Amount in SARmn, unless otherwise specified
2012
2013e
2014e
2015e
2016e
Sales revenue Growth YoY (%) Cost of sales Gross Profit Growth YoY (%) General & administration expenses Operating Profit Growth YoY (%) Financial/Bank charges Other expenses Profit before zakat & minority interest Zakat Minority Interest Net profit Growth YoY (%) Key Fundamental Ratios Liquidity ratios Current ratio (x) Quick Ratio (x) Profitability ratios Gross Margin Operating margin Net Income Margin EBITDA margin Return on average assets Return on average equity Leverage ratio Debt/Equity (x) Market/Valuation ratios EV/Sales (x) EV/EBITDA (x) EPS (SAR) BVPS (SAR) Market Price (SAR)* Market-Cap (SAR mn) Dividend Yield P/E ratio (x) P/BV ratio (x)
1,352 34.5% (1,164) 187 20.3% (135) 53 -32.9% (28) 42 67 (7) (1) 60 -21.5%
1,417 4.8% (1,208) 209 11.4% (128) 81 53.6% (30) 44 96 (11) 85 41.5%
1,521 7.3% (1,289) 232 11.0% (132) 100 23.2% (25) 46 122 (13) 108 26.8%
1,639 7.8% (1,381) 258 11.3% (136) 122 21.7% (19) 49 152 (17) 135 24.7%
1,765 7.7% (1,474) 291 12.8% (154) 138 12.8% (16) 51 173 (19) 154 13.8%
5.2 2.8
4.7 2.5
4.4 2.4
4.2 2.2
3.9 2.1
13.9% 3.9% 4.5% 6.7% 3.9% 10.3%
14.7% 5.7% 6.0% 8.6% 5.3% 15.0%
15.2% 6.6% 7.1% 9.3% 6.8% 18.0%
15.7% 7.4% 8.2% 10.0% 8.5% 20.6%
16.5% 7.8% 8.7% 10.3% 9.6% 20.9%
0.16
0.16
0.21
0.19
0.13
1.26 18.75 1.42 13.11 23.75 1,012 5.3% 16.78 1.81
1.20 13.98 2.00 13.58 23.50 1,002 5.3% 11.73 1.73
1.12 12.10 2.54 14.57 23.50 1,002 5.3% 9.25 1.61
1.04 10.35 3.17 16.20 23.50 1,002 5.3% 7.42 1.45
0.96 9.39 3.60 18.26 23.50 1,002 5.3% 6.52 1.29
Source: Aljazira Capital * We have taken respective December closing prices for 2012, while for years 2013 & onwards we used closing price of 13th Mar 2013. We used the company’s preliminary (unaudited) quarterly financial statements for 2012.
© All rights reserved
RESEARCH DIVISION BROKERAGE AND INVESTMENT CENTERS DIVISION
AGM - Head of Research
Senior Analyst
Abdullah Alawi
Syed Taimure Akhtar
+966 2 6618275 [email protected]
+966 2 6618271 [email protected]
Senior Analyst
Analyst
Analyst
Talha Nazar
Saleh Al-Quati
Jassim Al-Jubran
+966 2 6618603 [email protected]
+966 2 6618253 [email protected]
+966 2 6618602 [email protected]
General Manager - Brokerage Division Ala’a Al-Yousef
AGM-Head of international
Regional Manager - West and South
and institutional brokerage
Regions
Luay Jawad Al-Motawa
Abdullah Al-Misbahi
+966 1 2256000 [email protected]
+966 1 2256277 [email protected]
+966 2 6618404 [email protected]
Area Manager - Qassim & Eastern Province
Abdullah Al-Rahit
RESEARCH DIVISION
AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business.
RATING TERMINOLOGY
+966 6 3617547 [email protected]
1. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. 2. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. 3. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. 4. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company.
Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by AlJazira Capital from sources believed to be reliable, but AlJazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. AlJazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in AlJazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report. This report has been produced independently and separately and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report. It should be also noted that the Research Division of AlJazira Capital had no information at the time of issuing this report regarding any conflict of interest between the company/companies mentioned in this report and any members of the board / executives / employees of AlJazira Capital or any of Bank AlJazira Group companies. No part of this document may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of AlJazira Capital. Persons who receive this document should make themselves aware, of and adhere to, any such restrictions. By accepting this document, the recipient agrees to be bound by the foregoing limitations.
Asset Management
Brokerage
Corporate Finance
Custody
Advisory
Head Office: Madinah Road, Mosadia، P.O. Box: 6277, Jeddah 21442, Saudi Arabia، Tel: 02 6692669 - Fax: 02 669 7761
